Southport Minerals, Inc.

Case Study

Background:

Structured Financing

Structured Financing: Obligations Match Cash Flows

Debt capacity fully utilizedDebt capacity fully utilizedLoans staggered to match project timetableLines of credit provide debt support prior to full establishment of project cash flows Limited partners provide majority of equityGeneral partner provides small portion of equity

During early years, debt service consumes most of the expected cash flowexpected cash flow

Level of expected cash flow determines capacity for intermediate-term loans

Derivatives used to stabilize cash-flow match

Structured Financing: Cash Flow Distribution

Early years:Early years:Most of cash flows go to debt serviceLittle to limited partnersSmall or none to general partner

Middle years (after debt substantially reduced):Specified percentage to limited partnersRemainder to general partner

Late years (after debt paid & L.P.s receive specified return):

Small or none to L.P.sMost to G.P.

Who gets paid?

dle

Am

ount

Lenders

1st H

ur

Total Project Cash Flows

Who gets paid?

dle

Am

ount

Lenders

1st H

ur

Total Project Cash Flows

Limited Partners

General Partner

Who gets paid?

dle

dle

Am

ount

LendersLimited PartnersGeneral Partner

1st H

ur

2nd

Hur

d

Total Project Cash Flows

Who gets paid?General Pdl

e

dle

dle

Am

ount

Lenders

Limited Partners

Partner

1st H

urd

2nd

Hur

d

3rd

Hur

d

Total Project Cash Flows

Questions

Is infrastructure provided?Is infrastructure provided?Is there a viable community of interests?How thoroughly are risks covered?Is there profit potential for Southport Minerals?Minerals?

Which Approach?Approach 1. Discount at Southport Minerals’ cost of capital, ignoring the financial arrangements (zero NPV)capital, ignoring the financial arrangements (zero NPV)Approach 2. Discount at a premium above Southport Minerals’ cost of capital, ignoring the financial arrangements (negative NPV)Approach 3. Discount at Southport Indonesia’s cost of capital, considering the financial arrangements (expected NPV $58 million)NPV $58 million)Approach 4. Discount dividends paid versus equity invested at SI’s cost of capital (expected NPV $10MM)

Outcome

$20

$40

$60

$80

$100

$120

$140$

millio

ns

Balance Sheet 1972-1987

Debt Net Worth

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

Debt

$0

$20

year

Outcome

$10

$20

$30

$40

$50

$60

$ m

illio

ns

Profit & Dividends 1972-1987

Profit Dividend

-$10

$0

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

year

Through the 1990s

1988: Freeport Copper & Gold (FCX)1988: Freeport Copper & Gold (FCX) taken public on the NYSE1989: new project financing arranged for Erstberg East deposit1992, 1993, 1996, 2000: significant new , , , gdeposits of copper and gold discovered

Indonesia TodayThe world's largest archipelago, Indonesia achieved independence from the Netherlands in 1949 Current issues include:Current issues include:

Alleviating widespread povertyImplementing IMF-mandated reforms of the banking sector Effecting a transition to a popularly-elected government after four decades of authoritarianism Addressing charges of cronyism and corruptionHolding the military and police accountable for human rights violationsResolving growing separatist pressures in Papua New Guinea

On 30 August 1999 a provincial referendum for independence wasOn 30 August 1999 a provincial referendum for independence was overwhelmingly approved by the people of Timor

Concurrence followed by Indonesia's national legislature, and the name East Timor was provisionally adoptedOn 20 May 2002, East Timor was internationally recognized as an independent state.

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http://www fcx com/http://www.fcx.com/